RBI data nixes theory of social smuggling

The Reserve Bank of India’s data on allocation of wealth in the form of an asset like gold disproves Prof Kancha Ilaiah’s thesis on social smuggling. Prof Ilaiah calls Gujarat a ‘Komati’ state. His concept of social smuggling is based on the premise that Vysyas hoard their wealth in the form of gold and thus do not plough back their incomes into the economy as productive investment. Thus, he calls Komatis (Vysyas) as social smugglers.

However, the RBI Household Finance Committee report released in August 2017 shows that the preference for gold is relatively more among people in both Andhra Pradesh and Telangana than among those in Gujarat -- the State described by Prof Ilaiah as Komati. Gujaratis spend only 13.7 per cent of their income on gold which is substantially lower than that spent by people in Tamil Nadu (28.3%), Andhra Pradesh (21.6%) and Telangana (17.5%).

Tamil Nadu, Andhra Pradesh and Telangana, where Vysyas account for only a small percentage of the population, lead the nation in buying gold. This is the empirical data provided by India’s central bank. Should Tamil and Telugu people as a whole be branded as social smugglers?

There is an interesting difference in how Tamils and Telugus use gold, be it as a hedge or as an investment option. Moreover, in states such as Tamil Nadu, where households store a high fraction of their wealth in gold, they also have more than 40% of their total debt in the form of gold loans.

But, this seems to be not the case with states like Andhra Pradesh and Telangana. Gold loans account for less than 10 percent of the debt raised in Andhra Pradesh (9.5%). The gold loans are insignificant in Telangana (2.9%).